GOODBYE NASTY?

Claims data today was bullish for stocks

"I will not mince words - this week's 626,000 new jobless claims was a nasty number.....In a perverse way, this is going to ultimately end up as a positive for the US stock market. At this stage, I think the US market needs nasty and socialistic data in order to break the buck. If we break the buck, short sellers get squeezed, and the US market continues to make higher lows versus November's."

-IS THE NASTY GOOD? February 5, 2009

Today's Initial claims number arrived at 601K, 24k lower than the prior week's revised number and 21k below the four week moving average. Since initial claims first rose above 600k in February of this year the S&P 500 has risen by roughly 11% on declining volatility and volume while the US Dollar index has declined by almost 7%.

As the pace of US job losses moderates (even as the unemployment rate, a lagging indicator, continues to rise) "glass half-full investors" shifting through economic data continue to find more signs of a bottom. Meanwhile the self inflicted mauling of the US balance sheet continues; a degradation so complete that not only are nations who defaulted on their own sovereign debt just a decade ago now shunning US Treasuries for their reserves, media sources are reporting that the drug cartels of South America have abandoned the Dollar in favor of other currencies and gold as preferred forms of payment. As we have said over and over, a weaker dollar can have the perverse impact of aiding US equities as export industries become more competitive in foreign markets and asset valuations become more attractive for foreign buyers.

Our domestic equity exposure has gone from zero last week to 12% today, and all data continues to support the macro thesis for US stocks that we entered the year with. As always however, we find a wealth of meaning in the margin -and less than bad is not the same as good for us.

We expect to continue to trade the equity market inside a narrow range for now, and have not quite seen enough to say goodbye to nasty news for stocks just yet.

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